Huge entry into crisis

What will Pang Qinghua do next?

On October 23, 2011, Saab Automobile unilaterally terminated its cooperation with the huge group (601258.SH) and Young Motors. As a precursor to this decision, Saab Motors stated outside China that it rejected the proposal that the two Chinese companies acquire 100% of their shares. After making this decision, Saab Motors stated that the negotiations between the three parties have not been terminated.

Focusing on funding, Saab Motors also took a step before issuing warnings to the two Chinese companies. On October 20, 2011, NorthStreet, the US hedge fund, agreed to provide Saab with $70 million in equity investments and loans.

From this perspective, Saab’s decision officially formalizes the game with Chinese companies. Pang Qinghua, chairman of the giant group, said in an interview with the media: "It has been impossible to provide Saab with funds in any form. It can only wait for government approval."

Pang Qinghua's remarks condensed the dilemma of the two Chinese companies in this transaction. Avoiding the possibility of continuing capital injection, but still insisting on acquisition. In fact, they can only choose such a decision. If you withdraw, the previous investments of the two Chinese companies were easily lost.

Of course, no matter which road Saab takes, it will not have a significant impact on the Chinese auto market. Or rather, the brand does not have the ability to shape the market in China. At the same time, the operation of such two Chinese companies will make it impossible for the Saab brand to generate much market disruption. The Chinese auto market does not lack a brand like Saab.

In fact, I am more concerned about the role of a large group in this transaction. In the Chinese automotive dealership (group) field, the Group has become China's largest distributor group on its scale. It will enter the vehicle industry through participation in Saab's acquisition, and what will happen next. How much can a group of giants recover in the 45 million euros that have been invested in Saab?

According to the listing prospectus of Huge Group, “As of June 30, 2010, the Company (referring to the Huge Group) had a total of 999 branches, subsidiaries and subsidiaries, in 21 provinces, autonomous regions and Mongolia. It has 685 distribution outlets, mainly in North China, including 501 automotive stores, 176 automotive markets, and 8 professional car markets.” In terms of scale, the huge group is indeed its name.

According to its announcement, in this scale, its net profit in 2010 was 1.236 billion yuan. This is not a very high rate of return. Take AutoNation, the largest car dealership group in the United States, as an example. In 2010, there were 242 franchised stores with total revenue of US$12.461 billion and net income of US$227 million. AutoNation’s growth has maintained steady growth as the entire US auto market has experienced major fluctuations. Looking back at the huge group, in the first three quarters of 2011, its profit growth rate was -36.19%.

Of course, for such a situation, it is entirely possible to use the characteristics of the Chinese market to explain it. However, what cannot be answered is that, in terms of scale and profit, the huge group does not have a good balance. Of course, due to the failure of China's stock market, stock price and other measures have been difficult to reflect the actual situation of the company, so the problem of large groups may be even greater.

If the market has not yet forgotten, it will be broken on the first day of the listing of the huge group. This also shows from another angle that China is still lacking a reasonable standard for the valuation of dealers. Often at this time, a large group and the interests surrounding it will think of companies like AutoNation. But to achieve such a scale and profit rate as AutoNation, the huge group still has a long way to go.

In terms of Pang Qinghua’s participation in Saab’s acquisition, he is seeking support for the huge group’s business and profit growth. This idea stems from his cooperation with Subaru. After becoming a regional agent for Subaru Brand China, the huge group has achieved a greater return. Participating in the Saab acquisition, Pang Qinghua intends to make Saab the second Subaru. But judging by the Saab brand in crisis, it is difficult to compare with Subaru. In the market, the Saab brand's influence is far weaker than Subaru.

If we zoom in on this development idea, then Pang Qinghua and the large number of unanswered questions are what kind of car dealerships they should become. Doing the largest scale does not mean that it has the strongest competitiveness. Measured by the huge net profit of the first nine months, this kind of income can only pay for the investment required by Saab.

In terms of specific business, compared with AutoNation, what Pang Qinghua and the huge group lacked was to increase the profitability of single stores. This once again returns to the positioning of a large group of companies and the management needed to position the brand. In the actual investigation, the managers of more large groups emphasize the scale, and they are not much competitive in the operation of specific businesses. In their opinion, this is a scale benefit. The market will test their claims. However, AutoNation was also well-established in its early stages of development. It used to have more than 480 dealerships, but it is difficult to compare profits with the present. It was the scale that had almost made AutoNation in trouble.

The timing of examining the huge group and Pang Qinghua’s ideas began to appear, and Saab’s investment risk was only the beginning. After a significant decline in sales volume in the Chinese market, the problems of the huge group will explode even more quickly and spread more widely. At the same time, changes in China's financial policy are another great source of uncertainty. It is expected that the problems of a large group can be seen more clearly within half a year.

As a result, Saab’s uncertainty is the beginning of a huge group crisis.